Definition and Overview of Feasibility Study

A feasibility study is an analytical tool used during a business development process to show how
a business would operate under a set of assumptions. These assumptions often include such
factors as the technology used (the facilities, equipment, production process, etc.), financing,
(capital needs, volume, cost of goods, wages, etc.), marketing (prices, competition, etc.), and so
on (Brockhouse et al., 2010).
The study is usually the first time in a project development process that many key pieces and
information about the project are assembled into one overall analysis. The study must show how
well all of these pieces fit and perform together. The result will be an overall assessment of
whether the proposed business concept is technically and economically feasible. Feasibility
studies should also provide sensitivity analyses of the business given changes in key
assumptions.
One should note that a simulation or projection model, while useful, is not a substitute for a
comprehensive feasibility study. This type of model is sometimes used in a “pre-feasibility”
study done early in the project timeline to provide a first-cut evaluation of the proposed business
idea. The feasibility study evaluates the project's potential for success. The perceived objectivity
of the evaluation is an important factor in the credibility placed on the study by potential
members, lenders and other interested parties. A feasibility study presents and clarifies the risks
and returns associated with the project so that prospective members can evaluate them. There is
no "magic number" or correct rate of return a proposed cooperative needs to obtain before a
group decides to proceed (Brockhouse et al., 2010).

Feasibility Study Limitations

Although a feasibility study is a useful tool for project deliberation, it has limitations.
 A feasibility study is not an academic or research paper, but is a pragmatic information and data
analysis document. It is confidential to the group for which it is conducted, and is not for public
dissemination. A completed study should permit a group to make better decisions about the
strategic issues of its specific project.
 The study is also not a business plan, which is developed later in the project development
process and functions as a blueprint for a group's business operations for implementation. Given
a group's decision to proceed after evaluating a feasibility study's results, the business plan
presents the group's intended responses to the critical issues raised in the study. Many of the
outcomes presented in the feasibility study form the basis for developing a business plan if a
decision to proceed is made.

 A feasibility study is not intended to identify new ideas or concepts for a project. These ideas
should be clearly identified before a study is initiated. Assumptions that are partially developed
from these ideas provide the basis for the feasibility study, so the more realistic they are, the
more value the study's findings will have for a group's decision-making.

 A study should not be conducted as a forum merely to support a desire that a project be
successful. Rather, it should be an objective evaluation of a project's chance for success. Even
studies with negative conclusions are useful for group decisions.
As stated earlier, financiers may require a feasibility study before providing loans, but this
should not be a study's only purpose. Although a study can enhance a banker's ability to evaluate
a project, the primary goal should be to aid a group's ultimate decision on going forward, not
only whether financing can be secured.

 A feasibility study will not determine if the project will be initiated, since that depends on the
potential members, who will invest in and become the owners of the business. However, the
information, data, and facts offered in a study, given realistic assumptions, provide the basis for a
decision. Potential members must decide if the benefits justify the risks involved in their
continuing the project and the study findings will assist them in that assessment. A study uses
basic project assumptions to develop an analysis, shows how results vary when assumptions
change, and provides guidance as to critical elements of a project.

Conducting a study should provide the group with project-specific information to assist it in
making decisions. This should lower the risk of continuing with a business development project
that ultimately would fail (Brockhouse et al., 2010).
A business feasibility study is defined as an evaluation or analysis of the potential impact,
viability and profitability of a proposed project or business. A feasibility study is conducted to
assist decision-makers such as the idea owner, potential investors and facilitators in determining
whether or not that particular venture is achievable. The feasibility study is based on extensive
research on both the current practices and the proposed enterprise and its impact on the current
economic trend. The feasibility study will contain extensive data related to financial and
operational methods and will include advantages and disadvantages of both the current situation
and the proposed plan. The feasibility study is conducted to assist the decision-makers in making
the decision that will be in the best interest of the idea. The extensive research conducted in a
non-biased manner will provide data upon which to base a decision (NFSMI, 2008).

Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of an
existing business or proposed venture, opportunities and threats as presented by the
environment, the resources required to carry through, and ultimately the prospects for success
As such, a well-designed feasibility study should provide a historical background of the business
or project, description of the product or service, accounting statements, details of the
operations and management, marketing research and policies, financial data, legal requirements
and tax obligations. Generally, feasibility studies precede technical development and project
implementation. According to Wikipedia the five common factors acronym TELOS refers to the
five areas of feasibility - Technical, Economic, Legal, Operational, and Scheduling (Wikipedia).
A feasibility study may be conducted by the aspiring entrepreneur who often does not have the
time required to conduct the in-depth analysis required to complete a feasibility study. Also, a
consultant can be hired to conduct the feasibility study (NFSMI, 2008).

Factors to consider when conducting a Feasibility Study.

1. Economic feasibility
Economic analysis is the most frequently used method for evaluating the effectiveness of a new
venture. More commonly known as cost/benefit analysis, the procedure is to determine the
benefits and savings that are expected from a new system and compare them with costs. If
 benefits outweigh costs, then the decision is made to design and implement the system. The
analysis must accurately weigh the cost versus benefits before taking an action.
Cost-based study: It is important to identify cost and benefit factors, which can be categorized as
follows:
 Development costs: These are costs accrued to the initiation of the business venture with may
include the location cost, machinery cost and manpower employment cost

 Operating costs: They are day-to-day management expenditure to keep the business running
regularly, which is dominated by maintenance costs.
Time-based study: This is an analysis of the time required to achieve a return on investments.
The future value of a project is also a factor.

2. Legal feasibility
This determines whether the proposed business venture conflicts with the local legal
requirements, for example, whether the manpower employment method and/or conditions of the
business is amalgamable to the ‘Labour Act’ of the locality or if the material processing and
waste disposal methods conflicts with the local environmental protection laws.

3. Operational feasibility
Operational feasibility is a measure of how well a proposed venture solves the problems, and
takes advantage of the opportunities identified during scope definition and how it satisfies the
requirements identified in the requirements analysis phase of system development.

4. Schedule feasibility
A project will fail if it takes too long to be completed before it is useful. Typically this means
estimating how long the system will take to develop, and if it can be completed in a given time
period using some methods like payback period if a loan is used to finance the venture. Schedule
feasibility is a measure of how reasonable the project timetable is. Given our technical expertise,
are the project deadlines reasonable? Some projects are initiated with specific deadlines. If the
deadlines mandated needs to be determined.
 5. Market and real estate feasibility
Market feasibility studies typically involve testing geographic locations especially for a real
estate development project, and usually involve parcels of real estate land. Developers often
conduct market studies to determine the best location within a jurisdiction, and to test alternative
land uses for given parcels. Jurisdictions often require developers to complete feasibility studies
before they will approve a permit application for retail, commercial, industrial, manufacturing,
housing, office or mixed-use project. Market Feasibility takes into account the importance of the
business in the selected area.

6. Resource feasibility
This involves questions such as how much time and money is available to build the new system,
when it can be built, whether it interferes with normal business operations, type and amount of
resources required, dependencies and contingencies.

7. Cultural feasibility
In this stage, the project's alternatives are evaluated for their impact on the local and general
culture. For example, environmental factors need to be considered and these factors are to be
well known. Further an enterprise's own culture can clash with the results of the project. For
example, it is not morally right in this part of the world to sell contraceptives in public places.

8. Financial feasibility
In case of a new project, financial viability can be judged on the following parameters:
 Total estimated cost of the project
 Financing of the project in terms of its capital structure, debt equity ratio and promoter's
share of total cost
 Existing investment by the promoter in any other business
 Projected cash flow and profitability
 9. Technology and system feasibility
The assessment is based on an outline design of system requirements, to determine whether the
company has the technical expertise to handle completion of the project. When writing a
feasibility report, the following should be taken to consideration:
 A brief description of the business to assess more possible factor/s which could affect the
study
 The part of the business being examined
 The human and economic factor
 The possible solutions to the problems (Wikipedia).

Importance of Feasibility Study

 A feasibility study’s main goal is to assess the economic viability of the proposed business. The
feasibility study needs to answer the question: “Does the idea make economic sense?”
 The study should provide a thorough analysis of the business opportunity, including a look at all
the possible roadblocks that may stand in the way of the cooperative’s success. The outcome of
the feasibility study will indicate whether or not to proceed with the proposed venture. If the
results of the feasibility study are positive, then the cooperative can proceed to develop a
business plan.
 Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of an
existing business or proposed venture, opportunities and threats as presented by the environment,
the resources required to carry through, and ultimately the prospects for success (Justis and
Kreigsmann, 1979).
 It is meant for securing the resources (such as materials, physical and human) required for
profitable investments.
 It indicates the possibility of obtaining the required financial resources.
 It ensures that the expected income of the business will be more than its expected operating cost,
thereby, ensuring profitability.
 It ensures that the entrepreneur accept or rejects the business before starting such in venture.
 Feasibility result helps the entrepreneur to take a decision on an identified business opportunity.
 It helps creditors to take decision on the business to invest in.
 It helps the entrepreneur to have a better understanding of the effect the system would have on
the organisational structure.
 A feasibility study provides the stakeholders with varying degrees of evidence that a business
concept will be viable.
 To meet the stipulated requirements of financial institutions. For instance, banks and other
financial institutions giving loans to start a business executives demands for a Feasibility Report
of the proposed investment.
 To provide the basic information for effective decision making with respect to the proposed
investment. By showing the market potentialities, technical and financial implications of the
proposed opportunities, the feasibility report enable the entrepreneur to accept or reject the
project.
 To assist the entrepreneur in developing future plans for the organization.
 To serve as the basic for measuring the performance of the proposed business.

Skills required for Feasibility Study.

For an entrepreneur to carry out feasibility he must possess the following abilities:

 Financial Skills: This is very important, it is necessary that the individual possess the skills or is
able to purchase them by hiring someone who has the skills. In financial skills, financial analysis
is carried out, it lists the amount of start-up capital you need to establish the business, including
costs such as mortgage down payment or rental deposit for premises and the purchase of
equipment and inventory. Other skills in this area include the ability to prepare the operating
statement, the balance sheet, the cash flow statement, annual report, the break even analysis etc .
The first three will be briefly discussed on below:

The operating statement: This is also known as manufacturing, trading and profit and loss
account this is in the case of a manufacturing business. For merchandizing business a trading and
profit and loss account also known as income statement is to be prepared. The projections for the
operating statement for the first of five years could be on a monthly or quarterly bases and then
annually for subsequent years.
 The balance sheet: This is a statement summarizing the assets and liabilities of a business on a
particular date that is date when operating statement is drawn up. The balance sheet is also
important in the evaluation of the desirability of an investment proposal because through it,
potential investors can deduce the acceptability of the project. Thee balanced sheet can be drawn
up for the first five years of a proposed business. It should contain the following details: Fixed
assets: land and premises, plant and machinery, motor vehicles, furniture and fittings with their
prices; Current assets: inventory, debtors, prepaid expenses, bank, cash, etc; Total assets: equity,
long term liabilities, current liabilities and the total assets figure must be equal to that of the total
liabilities and equity figure.
 The cash flow statement: This is also known as cash budget, it is very vital in planning for and
controlling the anticipated cash receipts and cash payments. It is a summary statement of the
enterprise's anticipated cash inflows and outflow over a projected period of time Potential
investors are very much interested in the cash flow statement because it enables them to assess
in advance how soon a business will require additional financing. A very good study should be
carried out on the industry peculiar to a business and this should be put into consideration when
drawing up the cash flow statement. The cash flow
statement should contain; Cash receipts: cash sales, collection of accounts, receivables,
miscellaneous receipts etc.; Cash payments: purchases, wages and salaries, sales expenses,
general expenses, loan repayments, tax payments, other payments etc This can be done monthly
in the first year and quarterly from the second to the fifth year, the net cash balance (i.e. cash
receipts -cash payments) should be calculated. The firm compares the net change in marketable
securities and cash, cumulatively caused by variance in other statement components over a
certain time period, to verify that the figures match the cash change figures on the balance sheet
for the same period. If this is not properly done it could lead to lack of sufficient ready cash or
bankruptcy.
 Annual reports
The company should publish and distribute annual reports that summarize the prior year's
business climate, company operational results and projections for the following year. Annual
reports typically include industry descriptions and discussion of the company's operations
segments. Independently audited financial statements, along with management's statement
 analysis and posting of the previous two years' statement results, help to round out the annual
report (Sandilands, 2012).
 Raising capital: Capital for the business can be raised by self, family, friends or through loans.
But personal capital is preferred for start up of business than borrowed.
 Sources of short term financing: These include trade credit, pledges, bank overdraft etc.
 Book keeping and accounting system: No business can survive without taking records either of
purchase or sales this is done for recording all the day to day business and financial transactions
of the business. With records being kept in the case of a challenge, record books can be referred
to.

Marketing Skills: The entrepreneur must know the products he wants to market, the market and
consumers of his product i.e will the products and services be for the old, youth, babies etc,.
Goods and services from the company's production are to be marketed to the target
customers/consumers efficiently and effectively to do this the entrepreneur must know what he is
up against/ his competitors both nationally and internationally, exchange rats therefore the
following should be carried out:
 Market research and evaluation: The entrepreneur should first of all know the need he wants to
meet and not to join the crowd. He must have the ability to design and carry out market research
studies, analyze and interpret the results.
 Product pricing: The entrepreneur must know his product and services and must put a
competitive price on it. This must be supported by sound pricing objectives, policies and
discount schedules. He should identify competitors who supply similar products to the same
market and understand the unique features and benefits of their products, pricing and locations.
This will help determine what your price points should be, as well as highlighting gaps in the
market you may be able to fill.

The entrepreneur should also have technical skills, managerial and economical skills.

Proposed Outline for a Feasibility Study.

1. Executive Summary
2. Background Information
3. Proposed store
• Description of the System
• Advantages and Disadvantages of the Proposed System
• Staffing
• Space Requirements
• Basic Layout of the business
• Equipment Needs and Costs
• Computer Software Requirements
• Site Possibilities
4. Comparison of Current and Proposed Systems
5. Project Schedule
6. Final Recommendation

THE COMPONENTS OF FEASIBILITY STUDY

Executive Summary

An executive summary should be included at the beginning of the report. In 2-3 pages,
the main points of the feasibility study are summarized for a quick review . The executive summary
provides the reader with an overview of the feasibility study and will help them see the entire
picture before they read the details. Some decision-makers may only read the executive summary.
Thus, the executive summary should be concise and include the major findings of the study
followed by a recommendation

Description of Business
Begin your feasibility analysis with a detailed description of your business. This includes listing the
products your store will offer, the unique benefits to customers from buying from your store and
limitations your store will have. This section can also include a sample layout of the pet store to
identify the space requirements, the equipment and display options needed.
Key Success Factors
Identify the key objectives you need to achieve for the store to be successful. These could include
the minimum monthly profit you need to make a living, the quantity of inventory you would need to
carry to achieve this and the type of location the store needs to attract your target market.

Market Analysis
The most critical step in a feasibility analysis for a store is a detailed survey of your projected
market. This will help identify whether demand exists for the products your store will offer, who
your target customers are, how many of them exist and whether they have the funds to afford the
products.

Competitor Analysis
Identify competitors who supply similar products to the same market and understand the unique
features and benefits of their products, pricing and locations. This will help you determine what
your price points should be, as well as highlighting gaps in the market you may be able to fill.

Statement Of Advantages And Disadvantages

The advantages and disadvantages of the proposed system need to be clearly explained in the
feasibility study. Not only should the potential gains be discussed, but decision-makers need to
know possible disadvantages of the system. It is better to have the potential disadvantages described
so that there will be no big surprises when the new system is in operation. Also, it will help the
decision-makers determine if there are characteristics/outcomes of the new system that they will not
be able to accept; thus, helping them make decisions to modify the system before it is too late.
Knowing the potential disadvantages also help the decision-makers to be realistic and determine
ahead of time what they are willing to accept.

Financial Analysis
Your financial analysis lists the amount of start-up capital you need to establish the business,
including costs such as mortgage down payment or rental deposit for premises and the purchase of
equipment and inventory. Detail the initial registration and licensing costs and calculate your
operating budget for the first year. Compare this against your projected sales, based on price points
and your analysis of the customer potential and realistically examine your options for self-financing
or borrowing from lenders.

Marketing and Sales Strategy

Identify the methods of advertising and sales you will use to market your pet store and products.
Analyze the cost of these methods and the value of the potential returns. Get quotations for
advertising in your local media and for the creation of a website and printing of business cards and
fliers to publicize the pet store.
REFERENCES

Brockhouse J.W. and Wadsworth J.J. (2010). Vital Steps: A cooperative feasibility study guide.
Available at http://www.rurdev.usda.gov/rbs/coops/csdir.htm and
http://en.wikipedia.org/wiki/Feasibility_study

Justis R.T. and Kreigsmann B. (1979). The feasibility study as a tool for venture analysis. Business
Journal of Small Business Management 17 (1) 35-42.

National Food Service Management Institute (NFSMI), (2008). Available at

nfsmi.org/documentlibraryfiles/PDF/20080212032917.pdf